PARCEL November/December 2021

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fter two years of uncertainty, the parcel industry will be looking toward a more “normal” 2022 as the economy and society comes out of the pandemic. But the world is now a different place, and everyone will need to adapt. After the pandemic-induced chaos that was the year 2020, the parcel industry may have been hoping for a quieter 2021, but it was not to be. The caseload surge of Q1, the vaccine rollout and optimism of Q2, the Delta variant resurgence in Q3, and many more twists and turns in between have continued to keep us on our toes. This means that the optimism with which we entered 2021 now rolls forward into 2022. And from the current vantage point, the likelihood of this optimism being misplaced looks low. US case counts are dropping, vaccination drives continue with greater availability and eligibility, pills to treat COVID are imminent, domestic and international travel restrictions are being eased, and all this comes against a robust economic backdrop. However, a return to normal does not mean a return to business as usual or the same parcel delivery environment that we had prior to

the pandemic. The world has changed, and even if some behaviors and trends mean-revert to some extent, the parcel industry will have to grapple with a very new environment driven by structural changes in the last two years. We see six areas, in particular, where the market may need to adapt to a new normal. A much higher ongoing volume level. After running at a consistent 15% CAGR for several years, e-commerce grew 41% in 2020 and is on track for nine percent growth in 2021. Many industry observers believe that the pandemic pulled forward at least two to three years of e-commerce penetration with customers, and we agree. While some percentage of these new customers will likely return to stores as we reopen, the vast majority of these volumes are likely to be sticky. The parcel industry will have to learn to deal with significantly higher volumes going to many more addresses than we had seen prior to the pandemic. Significant capacity growth. With higher volumes will come higher capacity, and we have seen this occur in the parcel delivery space. There is perhaps no other industry in the world where capacity can be added as easily as in parcel delivery (think about it: Which other industry boosts capacity by 50%


for one month every year?). Amazon Logistics has increased its capacity by over 60%, UPS/FedEx/USPS have all had to deal with the higher volumes, and several new “last-mile” players have entered the space. Despite the volume growth, this should restore normalized demand vs. supply to a similar dynamic as we had prior to the pandemic. The competitive dynamic in the parcel industry in 2022 and beyond will likely look materially different as well. A shifting pricing dynamic. The disruption caused by the pandemic has driven UPS and FedEx to push pricing to unprecedented levels. Both providers levied non-peak season surcharges for the first time ever, peak season surcharges soared to new heights, and, in certain markets (like International Express), capacity remains highly constrained and rates remain well above normal (as much as three times higher in some lanes). Our shipper surveys have seen sharp declines in UPS/FedEx’s “aggressiveness to win new business” and significant volatility in “value for money” and “discounts offered off base rates.” While some of this will normalize in 2022 (especially in International as passenger belly capacity returns to the skies), it remains to be seen how long UPS/FedEx and others will continue to push pricing